How to Price a Job Correctly as a Contractor

This is the single most expensive misunderstanding in the trades. Markup and margin both describe the gap between your cost and your price — but they measure it differently, and treating them as the same number means you're charging less than you think.

Say your direct costs on a job are $10,000 and you mark them up 20%. Your price is $12,000. It feels like a 20% job. But your gross margin is the $2,000 profit divided by the $12,000 price — which is only 16.7%, not 20%. The markup is a percentage of cost; the margin is a percentage of price, and price is always the bigger number.

If you actually want a 20% margin, you need roughly a 25% markup. Rather than guess, work backward from the margin you need using one formula:

Price = Cost ÷ (1 − target margin)

For a 20% margin on $10,000 of cost: $10,000 ÷ (1 − 0.20) = $12,500. That extra $500 over the "20% markup" price is the gap that disappears on every single job when you confuse the two numbers.

Direct job costs — labor, materials, equipment for that specific job — are only part of what the job has to pay for. Your overhead is everything that keeps the business alive whether or not you're on a job: insurance, your vehicle and fuel, tools, the office, software, and your own non-billable time running the business.

For most contractors, overhead runs somewhere between 10% and 20% of revenue, depending on the trade and the size of the operation. If you price using only labor and materials and treat what's left as profit, you haven't actually made profit yet — you still owe all of that overhead out of the leftover.

This is why so many contractors who look fine on gross margin are actually thin — or negative — on net margin once overhead is properly accounted for. If you're not sure what counts as healthy, our contractor profit margin guide by trade breaks down gross vs. net benchmarks so you can see where you should land.

Hourly billing caps your upside and quietly punishes you for getting faster and better at your trade. Worse, it only accounts for time — not the full value and scope of the work, the materials, the risk, or the overhead.

Project-based pricing protects margin better because it forces you to price the entire scope: every material, every phase, the overhead, and the margin you need on top. When you price the job, an efficient crew keeps the savings; when you price the hour, the customer does. Quote the outcome, and use your hourly rates internally to build up to that number — not as the number you hand the customer.

Here's the part almost everyone skips: checking whether the price was actually right after the job is done. Comparing what you estimated against what the job actually cost is the only way to know if your pricing assumptions hold up in the real world.

Without that feedback loop, the same underpricing mistake repeats job after job — you never find out the panel job always runs four hours long, or that material waste is eating 8% you never budgeted for. With it, every completed job sharpens the next quote.

This is exactly what TradeShield's Insights tab does automatically: quote a job, complete it, and see exactly how the actual cost compared to the estimate — no spreadsheet required. If you want to see how the same workflow looks inside a specific trade, take a look at TradeShield's estimating software for electricians.